Borrowers give fixed rate home loans the cold shoulder

Borrowers’ fondness for fixed rate home loans took a tumble in January for the first time in eight months, according to loan approval figures from the country’s largest independently-operated mortgage broker.

February 02, 2012

Borrowers' fondness for fixed rate home loans took a tumble in January for the first time in eight months, according to loan approval figures from the country's largest independently-operated mortgage broker.

Mortgage Choice customer data for January 2012 shows fixed rate demand accounted for 21% of all new home loan approvals, a fall from 24% in December 2011.

Company spokesperson Belinda Williamson said, "Our latest loan approval figures suggest borrowers taking out new loans at the start of this year were less concerned with locking in their loan's interest rate than those who took out a new loan in late 2011."

"The popularity of fixed rate loans fell by three percentage points in January, recording the first drop in demand since May last year.

"Interest rate cuts and generous discounting on variable rate loans could be the key drivers behind borrowers giving fixed rate loans the cold shoulder. The margin between fixed and variable has narrowed, with most variable rates now sitting only slightly higher than fixed rates.

"If the Reserve Bank decides to cut the cash rate further during its meeting on Tuesday and lenders pass on all or part of the savings, some variable rates could very well fall below fixed rates. If this occurs, next month's loan approval data may show a bigger shift towards variable rate loans.

"Customer demand for variable rate loans in January rose to 79% from 76% in December, which is below the 12-month average of 85%.

"Of all the variable rate loans, ongoing discount rates - where the interest rate is discounted over the entire loan term - maintained their popularity. Demand for this loan type reached an all time high at 46% of approvals, up from 41% in December and above the 12-month average of 37%."

Demand for basic variable loans fell slightly to 14% of all approvals in January, from 15% in December while standard variable loan demand dropped marginally to 15% from 16%. Line of credit loan popularity held steady at 3% and interest in introductory rate loans remained below 1%.

Note: Mortgage Choice currently writes one in 25 new home loans in Australia, equating to approx. $10 billion in approvals per year, hence it provides a clear insight into borrower preferences. The 19 year old mortgage broker has a loan book of over $42 billion.

For further information or to arrange an interview, please contact:

Belinda Williamson
Corporate Affairs
02 8907 0472 / 0407 416 124

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